IP: There's no papering over this dispute

Reverse confusion. Bullying. Potentially large damages. Bad faith. The dispute brewing over the PAPER trademark invokes all the relatively rare theories that trademark lawyers love to obsess over. The big question: Who will win and why?

In one corner is Facebook, which just announced its much anticipated news-reader application, PAPER. Facebook's new app uses a Flipboard-like interface for viewing content, including articles from well-known publications, in the user's Facebook timeline.

In another corner is a small application developer, FiftyThree Inc., creator of the PAPER sketching application. FiftyThree’s app allows users to sketch, draw and create designs on an iPad. It's been a popular iPad title and has even won an Apple Design Award in 2012. It is listed as a must-have app in the New to the App Store section, and was named App of the Year, too. Paper has also been honored with awards from AIGA, IxDA, Communication Arts and Time.

In yet another corner (do we have a triangle?) is Paper Communications Inc., publisher of fashion and style magazine Paper, since 1984; its website has been online since 1996.

So: Who can use PAPER for their particular product? And who cannot?

If FiftyThree or Paper Communications were to challenge Facebook — and various news outlets are reporting that one or both might do so — each would likely argue that Facebook’s new PAPER app is likely to cause either confusion or more likely reverse confusion with their prior rights in their own respective PAPER marks.

Typically, the argument for a finding of confusion rests on a judgment that the second user of a mark will in effect cash in with consumers on the goodwill generated by the first user of that same mark. But reverse confusion occurs when the second user becomes better known than the first. In reverse confusion, the first user loses the opportunity to control its own reputation and goodwill. So the provision for a finding of reverse confusion protects the trademark rights of small, senior users against junior users whose marks have gained commercial strength through extensive marketing.

One notable characteristic of reverse confusion cases is that they often involve large damage awards due to the high sales volume of the infringer. Successful plaintiffs often receive either a reasonable royalty with or without an enhancement for deterrence, or 10 to 30 percent of the defendant’s profits. Another characteristic is that plaintiffs risk little in a lawsuit because of the nature of damages awarded. The expected value of the lawsuit is skewed by the opportunity for large damages.

Proponents of strong reverse confusion protection often struggle to identify its specific harms. Depending on the circumstances, a small senior user may see a jump in sales when a large junior user adopts the same mark and begins promoting the product line. In addition, the senior's mark is not causing confusion as to the source of the junior user’s good, so it does not fall into the auspices of traditional likelihood-of-confusion analysis, where a court would look to see whether consumers believe that the senior user is the producer of the junior user’s goods.

However, victims of reverse confusion still contend that they are harmed by the junior user. One harm is the diminished value of the senior user’s mark. A second is that the senior user loses its control over its own mark. A third harm is that a senior user may lose its ability to expand into new markets. These harms are therefore most notable because they differ from the traditional harms of trademark infringement.

By way of contrast, in a typical trademark case, the consumer suffers from confusion in the marketplace when there is a likelihood of confusion. The senior user is harmed because the junior user infringes on the senior's mark and siphons off its business. As a result, the infringer is unjustly enriched because it profits from the goodwill associated with the senior user.

The harms associated with reverse confusion are therefore distinguishable from the harms associated with forward confusion. While the infringer is not reaping any of the benefits typically associated with trademark infringement, the senior user loses the significance and distinctiveness of its mark, a consequence similar in fact to dilution.

In the case of Facebook's PAPER, FiftyThree’s CEO explained it clearly: People now believe FiftyThree Inc. is associated with Facebook. The confusion over the app names has already led to questions about FiftyThree's status as well as the future of their Paper app. People have begun asking FiftyThree if it has a licensing deal with Facebook or has been purchased by it.

Interestingly, FiftyThree appears to have also jumped on the recent trademark bullying bandwagon. The USPTO has defined “trademark bullying” as the practice of a trademark holder's using litigation tactics in an attempt to enforce its trademark rights beyond a reasonable interpretation of the scope of those rights. That's not exactly what FiftyThree has been insinuating about Facebook’s response to FiftyThree’s request that Facebook change its app’s name, but it is pretty similar.

As FiftyThree posted on its website, “What will Facebook's story be? Will they be the corporate giant who bullies their developers? Or be agile, recognize a mistake, and fix it?" FiftyThree's use of “bullies” is non-mistakable and it is particularly relevant in trademark law, as courts and commentators alike have been fixated on it for the past few years. FiftyThree seems to think Facebook's actions constitute bullying; so, FiftyThree is now bullying back — turning to the court of public opinion to pressure Facebook into changing Paper's name. This is often a very sound strategy. If you're concerned about entering litigation from a cost or outcome perspective, trying everything you can before litigation, including seeking to sway opinions by blogging and using other social media outlets, is often a good way to go.

Make no mistake, if FiftyThree or Paper Communications do seek a day in court against Facebook, Facebook will have defenses at its disposal. For example, one area where either would-be plaintiff could have a particular problem is in the fact that so many other smartphone and tablet applications are available through the App Store with similar — or even the same — names. Facebook could argue that neither plaintiff has defended its trademark with other companies, so why should this case be any different?

Also, Facebook could make a strong argument that PAPER is merely a descriptive term for newspapers and drawing paper so that no company should be able to prevent Facebook from using it as well. Facebook wants users to see its Paper app as a kind of dynamic magazine, or paper that shows what their friends are up to, along with curated content from other sources. With that in mind, "Paper" makes sense for the app's name.

The question of how related or unrelated the parties’ goods are will also be important in any future litigation. FiftyThree's PAPER is an app for drawing and sketching in life-like brush strokes on a tablet, while Facebook's PAPER app is a synthesized social media feed that includes news and other Web content. But the Facebook app is also meant for sharing and creating, as is that of FiftyThree. FiftyThree will also be able to say it is selling roughly the same product as Facebook: smartphone and tablet apps. FiftyThree may argue that what it is doing is similar to what Facebook is doing, in the same trade channels to the same types of consumers.

Ironically, Paper Communications may have a stronger case on the merits than FiftyThree. A magazine website such as the one operated by Paper Communications, which is publishing editorial content over the Internet to end users, may seem to judge and jury more likely to be confused with Facebook's PAPER than FiftyThree’s drawing app. Between Facebook and Paper Communication there is an overlap between delivering content via social media, in the former's part, and content creation and delivery, in the latter's part.

Audiences may not care much one way of the other. They probably care only about whether the apps work well, and not about their source. But don’t say that to the trademark attorneys on each side in this one: they'll be too busy printing the reams of paper that make their case, and one way or another, someone will get cut.